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War rally cry as Indexes at monthly high

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War rally cry as Indexes at monthly high

The major indexes surged high today on what looked to be a war rally cry that had bulls shouting the indexes to their highest levels of March, and finds the NASDAQ-100 Index (NDX.X) not far from its 2003 highs set in early January.

While floor traders cited extensive short-covering on some type of "resolution" coming to a head with Iraq, a strong round of selling, similar to that found from the October lows was found in Treasuries today.

The action in the bond market comes just one day before the FOMC meeting, where some expect the Federal Open Market Committee to cuts its Fed Funds rate by 1/4 point to 1.0%. While traders and investors might look for Treasuries to find buying as the Fed cuts interest rate, I'd suggest traders keep a close eye on bond YIELDS and should we see selling, could be a sign from the bond market that the Fed might be nearing the end of an easing cycle.

10-year YIELD Chart - Daily Interval

The benchmark bond saw a strong round of selling today, which had its YIELD ($TNX.X) jumping higher, not unlike that found on October 11th. In prior wraps, we wanted to be on the alert for such action in the bond market to hint that a rally in the indexes might still have legs. A good test tomorrow is to see what the FOMC does with its Fed Funds interest rate, which currently stands at 1.25%.

Selling in Treasuries along with a good round of short covering had the NASDAQ-100 Index (NDX.X) holding the 1,018 level. In Friday's 01:00 PM intra-day update and Friday evening's market monitor, the 1,018-1,019 level looked to be an important level of support today for the stronger NASDAQ-100 Index, and while there was some weakness at the opening of today's trade, suspicious support was found at 1,108.75, which was the morning's low, and today's trade into the close looked to have this index, or at least stocks within it, experiencing some aggressive short- covering by bears. Amazingly, the NASDAQ-100 Index (NDX.X) 1,077.01 +4.51% closed above its WEEKLY R2 and now has its MONTHLY S2 in play at 1,102. The NASDAQ-100 Index (NDX.X) and NASDAQ-100 Tracking Stock (AMEX:QQQ) $26.60 +3.42% are the only indexes in our matrix that have been able to trade their MONTHLY R2's, which continue to hint that this is the index that bulls will continue to look for leadership from, and help pull the other major indexes higher.

Here's a quick look at the pivot matrix. Note that on Friday, we updated the WEEKLY portion of the matrix at Friday's close.

Pivot Analysis Matrix

As the major indexes push higher today, we're starting to lose many resistance levels as bullishness continues to take out upside resistance. With strength in the NASDAQ-100 Index (NDX.X) a next level of resistance to monitor would be between tomorrow's DAILY R1 of 1,096 and WEEKLY 1,102. Initial support for the NDX would be correlative at WEEKLY R1 of 1,066 and MONTHLY R2 of 1,069. With the NDX having traded its MONTHLY R2 level of support today, I'm now looking for "rock solid" support at the MONTHLY pivot of 989.20 and WEEKLY Pivot of 1,006.

NASDAQ-100 Index (NDX.X) - Daily Chart

The 1,018 level kept showing up in the WEEKLY pivot matrix and showed up today in the form of 1,019 and despite early morning weakness, this level held support. On Thursday, we looked at QQQ chart and the "volume spike" on gap higher and close above 1,018. Bears look very eager to cover now and builds support from a 2- month base, which can serve as a "powder keg" that looks to be on fire. Similar MACD and Stochastics today that were found back in mid-October when 10-year YIELD ($TNX.X) made a move from the lows.

Today's action saw a net gain of 6 stocks to reversing higher point and figure buy signals, and that's enough to have the NASDAQ-100 Bullish % ($BPNDX) reversing up into "bull alert" status at 40%. Based on this indicator's high of 82% in December, I would now put upside potential in the NDX at 1,155 or higher should the bullish % approach the December high reading of 82% bullish, but today's reversal back up shows demand now building in a more meaningful matter. It would currently take a reading of 68% for this indicator to achieve "bull confirmed" status.

S&P 100 Index (OEX.X) - 5-point box

Today's trade at OEX 435 has the conventional 5-point box of the OEX negating the bearish vertical count and turns the vertical count bullish to 500. Past bullish vertical counts have not been achieved the prior two years, but serve as a bear's alert of upside risk in a bearish position. I've added "blue dots" on the above chart of the OEX to depict that of a bullish channel and I see some formidable near-term resistance at the bearish resistance trend and WEEKLY R2 of 445. Bears will most likely have covered partial positions today, and will be looking for any weakness back near the WEEKLY pivot of 417.50 or MONTHLY pivot of 423.70 as a cover area.

In October, the NASDAQ-100 Bullish % ($BPNDX) reversed up into "bull alert" status on October 11th. Two session's later (end of trading Oct. 15th), the S&P 100 Bullish % ($BPOEX) reversed up into "bull alert" status. Today's action saw a net gain of 3 stocks generating reversing upward point and figure buy signals, which has the OEX Bullish % rising to 26%. It would currently take a reading of 28% to have this indicator achieving "bull alert" status. Aggressive bulls can look 1/4 position long at today's triple-top buy signal of 435, but I'd look MINIMUM 3- months expiration out to try and allow time for the bullish % to reverse back high and get the OEX back above its bearish resistance trend (red + at 450).

Bear's should be no more that 1/2 position bearish after today's trade at 435.

S&P 500 Index Chart - Daily Interval

Today's trade at 855 triggered a triple-top buy signal in the SPX and we'll take a look at the point and figure chart in a minute, but the SPX has really been slicing through some zones of resistance and breaking levels of resistance the bears haven't been able to defend. I'd look for some type of bullish profit taking near the WEEKLY S2 of 873, and then look for the pullback into the 833-837 zone for an "excellent" bullish entry. Let's quickly revisit out "suck 'em in and spit'em out, then take it higher" scenario from our March 5th Index Trader Wrap http://members.OptionInvestor.com/IndexTrader/iw_20030305_01.ASP to try and envision the trade. I've been a little off on my price levels, but the SPX action has certainly shown a "spit'em out" move, that is now in the "take" part of the trade. What's left I think is the "them" pullback, and then the higher should the bullish % reverse up into "bull alert" status.

S&P 500 Index Chart - 5-point box

Similar to the OEX point and figure chart, the SPX conventional 5-point box chart gave a triple-top buy signal. After a "spit-em out" type of move after our March 5th update, the MARKET has been taking the SPX higher. A bull that has been a bit hesitant on a bullish position looks for a pullback move, perhaps to 835, then looks for a 3-box reversal higher, which a bull looks to provide a type of "slingshot" or "catapult" type of action as the last of the bears head for the exits.

Today's action saw a net gain of 19 stocks to reversing upward point and figure buy signals, or a gain of 3.8% in the S&P 500 Bullish %. Current reading remains "bull correction," but a reading of 34% would be enough for a "bull confirmed" reading at a very low level of bullishness.

Should the S&P 500 Bullish % ($BPSPX) reverse up into "bull confirmed" status, I would then be willing to call October lows an initial bottom as we would have seen higher lows in the SPX itself and the bullish %. However, for a bottom to truly be called, the SPX must trade the 955 level. As you can perhaps see, it is VERY early to be overly bullish at this point.

Dow Industrials Chart - 50-point box

I turned further bullish in today's market monitor and suggested that bulls that took 1/4 bullish position in a profiled Dow Diamonds (AMEX:DIA) $81.46 +3.16% trade from March 5th, look to round up in the trade to 1/2 position by adding another 1/4 bullish position. At the time, I did not know that the Dow Industrials Bullish % ($BPINDU) has reversed up into bull alert status at 16.67%, but I really build conviction toward bullishness from today's reversal up in this very narrow bullish % indicator.

I'm now looking for strong support to build at the "apex" of the triangle that we had been monitoring, and view the ability of the Dow to get back above that apex to now become a level of support.

I'm not "sure" if the U.S. is going to war with Iraq, or if Saddam Hussein will put up a fight, but I would NOT look to add to bullish positions until the Dow breaks above its bearish resistance trend. With the NASDAQ-100 reversing up into "bull alert" status and the very narrow Dow Industrials Bullish % ($BPINDU) also reversing up into "bull alert" status, both from lower levels of bullishness, bears should be pressed to begin stepping up their short covering, which should begin building support for bullish pullback entries as demand look to begin outstripping supply.

Jeff Bailey

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